Report: Slower recovery in state

UCLA forecast sees ‘little or no growth’

The widely followed UCLA Anderson Forecast says California's economy will recover more slowly than the rest of the nation's because of the sorry fiscal condition of state and local governments here.

A quarterly forecast that UCLA will release today shows job losses in the state continuing through the end of the year, with unemployment peaking at 12.2 percent in the fourth quarter and staying in double digits until mid-2011.

“Overall, the outlook for the balance of the year is for little or no growth,” UCLA senior economist Jerry Nickelsburg said.

UCLA's economists concur with the growing number of forecasters who say the nationwide recession is likely ending, with economic growth resuming in the current quarter, but they say the recovery will be weaker than usual.

Their analysis parallels that of Federal Reserve Chairman Ben Bernanke, who said yesterday that it is “very likely” the recession is already over but that it will take time for unemployment to fall.

In predicting a 2.1 percent growth rate for gross domestic product this quarter, UCLA senior economist David Shulman said the initial turnaround will be fueled largely by companies starting to rebuild inventories.

But the rapid bounce back that sometimes follows recessions won't happen this time, Shulman said, because households and businesses continue to repair their finances from the heavy borrowing of past years.

The forecast also says that, while a full evaluation of the government's stimulus programs is premature, they appear to have limited the decline in the economy during the particularly precarious period last winter.

However the UCLA economists said the resulting budget deficits — perhaps $9 trillion in total over the next decade — represent a “fiscal train wreck” that could lead to a weaker dollar and require higher taxes.

“Tax increases on the broad middle class are becoming more likely,” Shulman said. “That will put more stress on consumption spending later in the decade.”

Nickelsburg said California's economy will be slower to recover than those of other states because of the impending shrinkage of state and local governments, which represent 16 percent of jobs in the state.

This summer, state lawmakers relied on a package of spending cuts and accounting maneuvers to close a $26.3 billion deficit.

Still, Nickelsburg said there are reasons to think California's economy will turn around by next year. For one thing, signs of revival in the housing market suggest that “conditions are becoming ripe for new residential construction.”

Kelly Cunningham, an economist with the National University System Institute for Policy Research, said San Diego County's outlook is better than in many areas of the state.

He said that while government spending cuts will hurt locally, he believes the local unemployment rate may be as high as it will get.

That rate was was 10.3 percent at the last reading, but seasonal fluctuations mean it usually drops as summer turns to fall. While national and statewide unemployment data are adjusted to remove seasonal fluctuations, the state's data for individual counties is not.

Cunningham also said that San Diego's economy is cushioned somewhat by the presence of military and defense contractors, which have picked up business from the wars in Iraq and Afghanistan.

“Now there's all this talk about stimulus dollars coming in,” Cunningham said. “But San Diego has been getting a pretty good stimulus from the military for several years.”